Obama signs student loan bill limiting interest rate costs

Bloomberg

August 9, 2013

President Barack Obama signed legislation that links student-loan interest rates to financial markets, locking in borrowing costs and preventing a surge in expenses as students return to college this month.

“The bill is a common-sense approach to keeping student interest rates at a reasonable level, so young people have a better opportunity to go to college,” Obama said Friday during a signing ceremony at the White House. “Our job's not done, because the cost of college remains too much of a burden for families.”

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Enactment means almost 9 million undergraduates will pay 3.86 percent on their next government-sponsored student loans. The law reshaped student borrowing programs after Obama called in his budget this year for linking Stafford and PLUS loan rates to government borrowing costs.

“We can finally put behind us the annual game of Congress playing politics with student loan interest rates at the expense of students planning their futures,” Tennessee Sen. Lamar Alexander, the lead Senate Republican negotiator, said in a statement.

The legislation is designed to provide certainty to students who rely on government loans. Private lenders such as SLM Corp., popularly known as Sallie Mae, and Wells Fargo & Co. will know what students will be paying for government loans.

The new rates, pegged to 10-year Treasury note yields, will be retroactive to July 1 — the day interest costs for subsidized Stafford loans doubled to 6.8 percent from 3.4 percent, rising to the rate for unsubsidized loans.

The government pays the interest on subsidized loans while students are in school. Those loans are disbursed based on financial need, while unsubsidized loans have no income requirement.